4 Oil Firms Commit $1 Billion For Gulf Rapid-Response Plan

By JAD MOUAWAD

Published: July 22, 2010

Four of the world's biggest oil companies said on Wednesday that they were committing $1 billion to create a rapid-response system to deal with deepwater oil spills in the Gulf of Mexico, seeking to restore public confidence in the industry after the BP disaster painfully exposed how unprepared the industry was for a major accident.

The voluntary effort, which involves building a set of modular containment equipment that would be kept on standby for emergency use, comes as oil companies seek to persuade the Obama administration to lift a temporary ban on deepwater drilling. The moratorium was imposed after the Deepwater Horizon drilling rig exploded on April 20 and spewed millions of gallons of oil into the gulf.

Officials said the spill served as a wake-up call for the industry, which had invested billions of dollars to develop oil and gas resources in ever-deeper waters offshore but neglected to devise spill-response technology that could be effective in thousands of feet of water.

Environmentalists, members of Congress and federal and state officials have already made it clear that the industry will face tougher regulations when drilling resumes. The emergency response plan is part of the oil industry's effort to show it can improve its safety procedures and shape the inevitable rules of conduct that will be imposed.

The plan -- which was put together by Exxon Mobil, Chevron, ConocoPhillips and Royal Dutch Shell -- incorporates many of the lessons that BP was forced to learn the hard way in trying to cap a gushing oil well 5,000 feet below the ocean's surface.

The four companies said their initiative would seek to include all the companies involved in offshore drilling in the gulf, including BP. Their initial financing of $250 million each will be used to build a set of containment equipment, like underwater systems and pipelines, that will be able to deal with a variety of deepwater problems and can be deployed rapidly in the event of a spill.

The partners said it would take six months to get all the elements in place. The companies expect the system will be able to contain spills in water as deep as 10,000 feet and capture up to 100,000 barrels of oil a day, although that capacity could be increased if needed.

''It's doubtful we will ever use it, but this is a risk-management gap we need to fill in order for the government and the public to be confident to allow us to get back to work,'' Rex W. Tillerson, the chairman of Exxon, said in an interview.

Critically, the new system is expected to be deployed within 24 hours of an offshore spill, and to be able to fully contain the oil spilled within weeks, said Sara Ortwein, a vice president of engineering at Exxon, which has taken the lead in setting up the spill plan.

A new nonprofit entity, called the Marine Well Containment Company, will be created and be in charge of operating and maintaining this emergency capability. The entity, modeled in part after the Marine Spill Response Corporation, which was set up after the 1989 Exxon Valdez oil spill in Alaska, will also finance research to look into new ways of tackling an underwater spill.

It has taken BP nearly three months to finally cap its gushing oil well in the gulf, after repeated failures to plug the well using a series of jury-rigged devices. While drilling two relief wells to permanently seal its damaged well, BP has relied on inflatable booms, chemical dispersants, containment vessels and controlled burning to address the spill.

''One thing that has become clear is that we need to have a system that is flexible, adaptable and available for rapid response,'' Ms. Ortwein said in an interview.

Oil companies hope the initiative, the product of four weeks of intensive efforts involving 40 engineers from the four companies, will help persuade government regulators and the administration to allow them to resume offshore drilling in the Gulf of Mexico as soon as possible.

Oil companies are also seeking to deflect a series of bills being considered in Congress -- including one proposal that would force companies to drill a second well, called a relief well, alongside any new exploration well. Oil executives argue that such a proposal would not enhance safety offshore, but instead would double the risk because a relief well would be just as likely to blow up as an exploration well.

The Interior Department agency that oversees deepwater drilling said Wednesday that the industry's new response plan was a ''move in the right direction.''

''The BP oil spill has made it clear that oil and gas companies did not have the sufficient containment capacity to respond to a major spill,'' Michael R. Bromwich, the director of the department's Bureau of Ocean Energy Management Regulation and Enforcement, said in a statement. ''We are encouraged that a number of companies recognize this issue and are taking steps to correct it.''

However, oil companies still face considerable skepticism about their ability to operate safely in the gulf. Representative Edward J. Markey, Democrat of Massachusetts, one of the industry's most vocal critics, described the plan as ''BP's current apparatus with a fresh coat of paint.''

When top oil executives appeared before Congress several weeks ago, Mr. Markey and other lawmakers forced them to admit that their spill response plans were outdated and woefully inadequate.

Senator Mary L. Landrieu, a Louisiana Democrat who has opposed the drilling moratorium, said Wednesday that the industry's initiative was badly needed. ''It is clear that we simply cannot afford three months of trial and error ever again,'' she said in a statement.

The initiative is the first product of a larger discussion within the industry on how to improve safety in the gulf. Oil companies have set up an industrywide task force to consider new safety standards for offshore drilling, more frequent rig inspections, new requirements and certification for blowout preventers and improvements in well design.

Frank Verrastro, an energy expert at the Center for Strategic and International Studies, said an updated approach to safety in the gulf was overdue.

''Companies have used their technology to get into the deep water but they didn't have an adequate plan to intervene at these depths or to contain a large-scale spill,'' he said.

PHOTO: Oil platforms in the Gulf of Mexico. The industry plans to build containment equipment to be kept on standby for emergency use. (PHOTOGRAPH BY DERICK E. HINGLE/BLOOMBERG NEWS) (B9)